China & the Electronics Supply Chain: What's Next?

It's the topic that keeps recurring, the never-ending conversation and the controversy that nobody knows how to put to rest. No matter your company's location in the world and its business interest, events taking place in China will eventually affect your operations -- if they haven't already. So it's time to get prepared.

In the electronics industry, that view is now accepted by everyone, and it will be the focus of articles and discussions on EBN and Velocity, our supply chain-focused section, over the next month.

At conferences globally, in boardrooms and government offices, economists, entrepreneurs, business executives, and political leaders are talking about China and its current and future impacts on their sales and profits, entire operations, local communities, job prospects, and even international peace. While the Asia-Pacific region continues to attract tremendous investment interest from the international community, China is the epicenter of those actions. It accounts for a majority of all foreign direct investment.

China has in the last decade become the manufacturing location of choice for the electronics industry, making it home to the enterprises that produce products for many of the Western world's leading PC, smartphone, and other IT equipment. While observers focus on the manufacturing done in China for top-tier OEMs like Apple, Hewlett-Packard, Cisco, and Nokia, the support structures that facilitate these activities get much less attention. Yet China cannot play the critical role it does today in electronics manufacturing without the extended supply chain crew of component vendors, distributors, sub-assembly services providers, contract manufacturers, logistics companies, and, more recently, independent design firms.

The future of China's engagement with the electronics industry will depend on not only international economic developments, such as the European Union's debt crisis and weak demand in North America, but also on how events in the country affect the supply chain and all of the companies -- local and foreign -- that play in the sector. China's role will also be influenced by laws, regulations, and consumer sentiments outside the region, especially in the markets (EU and US) that buy a majority of the products manufactured in the country.

How will that future play out? First, expect China's role to change as the company moves up the food chain. While basic manufacturing is dominated today by China, the country is moving aggressively to increase its presence in higher-level, specialized, and fatter-margin products. It is also targeting functions such as electronics design currently dominated by Western companies. How will the West respond, and what will it mean for the electronics sector? How much more of the processes and services involved in electronics design chain and supply chain can be transferred to China, and what will the shift mean for the companies involved in the process currently?

EBN will be focusing on these questions in the Velocity/Supply Chain section over the next month. We will feature articles that examine the current situation, how China has evolved, and what the future holds. Essentially, the question our writers, contributors, and readers will help answer is reflected in the headline, and I'd like to restate it here: What's the next logical evolution for China, now that the country has established itself as a dominant force in electronics manufacturing?

To reiterate, what kind of electronics supply chain will emerge over the next five years with China's involvement, and what will the different components of that market -- contract manufacturing, distribution, semiconductor vendors, other component suppliers, and support services providers -- look like as China's role evolves in global manufacturing? It's a global phenomenon that will have an impact on all players, and how each emerges will depend partly on how well they understand that emerging future. Are you prepared?

By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.